United States Court of Appeals
                       For the First Circuit

No. 11-2106

              AUTOMOTIVE INDUSTRIES PENSION TRUST FUND,

                        Plaintiff, Appellant.
                              __________

         CITY OF ROSEVILLE EMPLOYEES' RETIREMENT SYSTEM,

                             Plaintiff,

                                 v.

         TEXTRON INC.; LEWIS B. CAMPBELL; TED R. FRENCH,

                       Defendants, Appellees.
                             __________

     ANGELO BUTERA; THOMAS F. CULLEN; BUELL J. CARTER, JR.;
            DOUGLAS WILBURNE; TEXTRON FINANCIAL CORP.,

                             Defendants.


          APPEAL FROM THE UNITED STATES DISTRICT COURT
                FOR THE DISTRICT OF RHODE ISLAND

          [Hon. Paul J. Barbadoro, U.S. District Judge]


                                Before
                       Boudin, Circuit Judge,
                     Souter,* Associate Justice,
                    and Thompson, Circuit Judge.


     Douglas Wilens with whom David J. George, Robert J. Robbins,
Samuel H. Rudman and Robbins Geller Rudman & Dowd LLP were on brief
for appellant.



     *
      The Hon. David H. Souter, Associate Justice (Ret.) of the
Supreme Court of the United States, sitting by designation.
     Mitchell A. Karlan with whom Brian M. Lutz, Gibson, Dunn &
Crutcher LLP, John A. Tarantino, Patricia K. Rocha, Nicole J.
Benjamin and Adler Pollock & Sheehan P.C. were on brief for
appellees.


                         June 7, 2012
          BOUDIN,   Circuit   Judge.      This   appeal   arises   from   a

securities fraud class action against Textron, Inc. ("Textron") and

several of its senior officers.        The relevant Textron businesses

are Cessna Aircraft Company ("Cessna"), a wholly owned subsidiary

accounting for approximately 40 percent of Textron's 2008 revenues,

Textron Financial Corporation ("TFC"), which finances Textron's

various ventures, and TFC's dedicated Cessna Finance arm. Lewis B.

Campbell was President and CEO of Textron, and chaired its board;

Ted R. French and Buell J. Carter were senior executives and

Douglas Wilburne headed investor relations.1

          Over the course of 2007 and 2008, on the edge and outset

of the recession, Textron made public statements assuring its

investors of the strength and depth of the backlog of orders at

Cessna, which Textron represented would help carry it through

difficult economic times.     In July and October 2007, and January,

July and November 2008, Textron reported record levels of "aircraft

and defense" backlog. Campbell and Wilburne also assured investors

that Cessna did not permit customers to sell delivery positions,

that is, the customer's priority in receiving ordered aircraft.




     1
      The defendants in the district court, in addition to
Campbell, were French, Executive VP and CFO of Textron and
President and CFO of TFC; Carter, President and COO of TFC; Thomas
Cullen, Executive VP and CFO of TFC; Wilburne, VP of Investor
Relations at Textron; and Angelo Butera, Chief Credit Officer at
TFC.

                                  -3-
           Attesting to the backlog's strength, Campbell said in

January 2008 that Cessna was seeing "unusually low cancellations."

In a July 17, 2008, conference call with investors, Campbell and

Wilburne said Cessna had only seen two cancellations in the first

two quarters of 2008.       Again in October 2008, Campbell said that

"[c]ancellations are not even noteworthy."              As late as November

2008,   Campbell     said   "on   the    cancellations    front,   which    is

encouraging    and     interesting,       we   aren’t    seeing    any     more

cancellations than we did last year or the year before at this

time.   So we don’t have a huge buildup of cancellations."

           In December 2007, Reuters quoted Campbell as saying "[i]f

we were running on a very low backlog, I'd be nervous, but the

converse is true."     In a conference call on April 17, 2008, French

told investors "[o]rders is not really going to be the driver.              It

is backlog."    The backlog--whose "size and resiliency" Campbell

emphasized in the July 2008 call--was also invoked as compensating

for a fall-off in Textron's financial services business.            And when

Textron revised downward Cessna's jet aircraft production schedule

on November 4, 2008, Campbell said:

           [W]e believe our record aerospace and defense
           backlog and pending customer orders of nearly
           $30 billion will provide a cushion and ballast
           to weather the uncertainties we face as we go
           forward.

           Nevertheless, three months later, on January 29, 2009,

Textron reported substantial cuts to Cessna's production levels due


                                        -4-
to   a   disappointing   fourth    quarter    2008:   few     orders,    23

cancellations,   and   "an   unprecedented   number   of    deferrals"   of

delivery dates by customers.      Textron stock closed at $9.09 that

day, down 31 percent from the previous day, and 87 percent from the

class period high.     Shortly thereafter, Campbell stepped down as

President (remaining as CEO and Chairman), and French and Carter

departed.

            In a February 2009 analyst report, J.P. Morgan wondered

"how we go from 3.5 years of backlog six months ago to a 20% y/y

production decline for 2009 that is only 80% sold out." Automotive

Industries Pension Trust Fund ("the Fund") answers that for over 18

months, Textron had misstated the strength of Cessna's backlog.

After another investor initiated the lawsuit now before us, the

Fund served as lead plaintiff for a class of all purchasers of

Textron securities between July 19, 2007, and January 29, 2009, who

charge Textron under the securities laws with intentionally false

or misleading statements.2

            The complaint does not challenge the technical accuracy

of most of Textron's statements, for example, the precise dollar


     2
      Section 10(b) of the Securities Exchange Act of 1934, 15
U.S.C. § 78j(b), Rule 10b-5 promulgated thereunder, 17 C.F.R.
§ 240.10b-1, and (as to the individual defendants) Section 20(a) of
the Exchange Act, 15 U.S.C. § 78t(a).      The claim under section
20(a) is derivative, ACA Fin. Guar. Corp. v. Advest, Inc., 

, 67–68 (1st Cir. 2008), and needs no separate discussion.
Additional counts alleging violations of sections 11 and 15 of the
Securities Act of 1933, 15 U.S.C. §§ 77k(a), 77o, were dismissed by
agreement and are not at issue here.

                                  -5-
figures of backlog.    Rather, plaintiffs charged--so far as is

pertinent to this appeal--that the Cessna backlog was artificially

inflated, that Textron deliberately omitted material information

revealing this fact, and that Textron's officers could not have

believed in the truth of their unrelentingly positive avowals of

the backlog's strength.    Plaintiffs relied on 23 confidential

witnesses to show the following weaknesses in the backlog:

          -Cessna   implemented  lowered   underwriting
          standards sometime before June 2007, thus
          providing loans to highly risky customers. A
          former Credit Manager at Cessna Finance said
          his number of declined loans dropped by 90%,
          and that the new credit standards were
          "absurd" because Cessna Finance was approving
          loans for customers who were "barely cash-
          flowing."

          -In April 2007, Cessna began financing 100% of
          customer deposits. A former Cessna Customer
          Solutions Manager said deposit financing was a
          sure sign the customer could not actually
          afford the aircraft.

          -Around the same time, Cessna began providing
          generous loan repayment terms and extended the
          standard amortization schedule from 12 to 20
          years.

          -Over 2007 and 2008, Cessna accepted more
          orders from international Authorized Sales
          Representatives (ASRs), which were merely
          contingent because they involved no end-buyers
          at time of order. A former Business Finance
          Partner at Cessna said it was well-known that
          many orders were contingent and that customers
          were essentially buying "delivery positions."

          -Cessna placed increasing pressure on buyers
          to delay rather than cancel orders altogether.



                               -6-
             The Fund also says that certain of Textron's factual

statements about cancellation figures were false when made--for

example, that Cessna had only two cancellations as of July 2008, or

that as of November 2008 cancellations did not exceed the prior

year's figures.       However, the main thrust of plaintiffs' complaint

and the evidence recounted in it concerned the failure to disclose

information about the weakness of the backlog due to relaxed

financing arrangements and other practices.

             On Textron's motion to dismiss, Fed. R. Civ. P. 12(b)(6),

the district court found the allegations insufficient to show that

material    information was omitted.             The court ruled that the

allegations of relaxed underwriting standards were too vague; that

plaintiffs failed to explain clearly how the standards changed, how

many loans were affected, or whether the allegedly risky loans

translated     into    cancellations       or   losses;   and   that    generous

financing    did   not   show   that   a     customer   could   not    afford   an

aircraft. City of Roseville Emps.' Ret. Sys. v. Textron, Inc., 

(D.R.I. 2011).

             As for the plaintiffs' claims that a few statements were

literally false, the court said that nothing indicated that reports

of only two year-to-date cancellations as of July 17, 2008, were

false, even though there was evidence of a sudden increase in

cancellations in "late summer 2008."             According to the court, the

complaint also failed to include cancellation figures from prior


                                       -7-
years that could contradict the November 2008 statement about year-

to-date cancellations.   

.

           The Fund now appeals, saying that the complaint was

sufficient to withstand a motion to dismiss.     Our review is de

novo.   Miss. Pub. Emps.' Ret. Sys. v. Boston Scientific Corp., 

, 85 (1st Cir. 2008).    We conclude that the complaint was

deficient but regard the materiality issue as a close call and rest

instead on the failure of the complaint to plead facts justifying

a reasonable inference of scienter.      The scienter issue was

briefly mentioned by the district court, which did not have to

reach it, but it was argued below and fully briefed on appeal.

           Section 10(b) requires plaintiffs to plead   (1) material

misrepresentation or omission; (2) scienter; (3) a connection with

the purchase or sale of a security; (4) reliance; (5) economic

loss; and (6) loss causation.     ACA Fin. Guar. Corp. v. Advest,

Inc., 

, 58 (1st Cir. 2008).      The Private Securities

Litigation Reform Act ("PSLRA"), 15 U.S.C. § 78u-4(b)(1), (2),

requires plaintiffs to specify each allegedly misleading statement

and why it is misleading--along with special requirements as to

scienter that are described hereafter.   The PSLRA was deliberately

intended to stiffen the requirements for securities lawsuits.

Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 

,

81-82 (2006).




                                -8-
               Under section 10(b), when a company makes affirmative

statements, it must include whatever disclosures and qualifications

are needed to avoid misleading a reasonable investor.                     Backman v.

Polaroid Corp., 

, 16 (1st Cir. 1990) (en banc).                            A

substantial weakening of a company's traditional requirements for

listing orders as backlogged, if slackened standards were not

disclosed, could make such backlog figures materially misleading.

Cf. Aldridge v. A.T. Cross Corp., 

, 79-82 (1st Cir.

2002).

               If this occurred here, Textron's general warnings about

the    possibility     of    cancelled     orders--of     which      there    were    a

number3--would not rescue it from liability.                  Such warnings might

insulate Textron from liability for "forward-looking statements"

like       revenue   projections,    15    U.S.C.     §   78u-5,     but     not    for

intentionally        misleading    characterizations          of   the    present    or

historical state of the backlog.             Cf. In re Smith & Wesson Holding

Corp. Sec. Litig., 

, 341, 344-45 (D. Mass.

2009).

               Based on the complaint, it is hard to assess whether

disclosures      would      have   altered      the   total    mix   of    available


       3
      In the July 2008 call, Campbell disclosed that "[p]ortions of
our backlog are susceptible to normal cancellations or deferrals.
And we'll likely see cancellations."       Textron also repeatedly
warned in SEC filings and press releases of the risk of "changes in
aircraft delivery schedules or cancellation of orders," and that
"[a]ircraft customers . . . may respond to weak economic conditions
by delaying delivery of orders or canceling orders."

                                          -9-
information for a reasonable investor. Basic Inc. v. Levinson, 

, 231-32 (1988).        For example, the district court pointed

to    the    lack   of   detail    surrounding       the    allegedly   relaxed

underwriting standards and the effect on the backlog. But the line

between pleading enough facts and proving one's case in the

complaint is a hard one to draw .              Plumbers' Union Local No. 12

Pension Fund v. Nomura Asset Acceptance Corp., 

, 773

(1st Cir. 2011).

             The district court viewed the allegations against Textron

as less compelling than those in Hill v. Gozani, 

(1st

Cir. 2011), where this court upheld the dismissal of section 10(b)

claims against the manufacturer of a new medical device. The

company there had not disclosed internal disagreement about whether

procedures using the device could be billed to insurers under

previously-accepted codes--a practice critical to the device's

financial success.        Indeed, the manufacturer expressed optimism

about a favorable outcome.

             But the manufacturer in Hill expressly warned that it did

not   know    how   third-party        payers--the    crucial    actors--would

ultimately     decide    the   level    of    reimbursement.     A   reasonable

investor could read such warnings, consult other sources about how

the payers might view the matter and gauge likelihoods for himself.

In our case, the only information available to investors about the

Cessna backlog was what Textron told them.                 Cf. N.J. Carpenters


                                       -10-
Pension & Annuity Funds v. Biogen IDEC Inc., 

, 47 (1st

Cir. 2008).

            The confidential witnesses also provide at least some

indication that underwriting standards were loosened, while Textron

comforted investors with assurances of its "traditional strong

conservative underwriting process."              And discovery might have

clarified issues such as the exact changes and terms of the

underwriting process, whether international ASR orders were unusual

or especially problematic, the extent and success of any campaign

to   encourage   deferral   over    cancellation,      raw    numbers    about

cancellations, and--as to each of these phenomena--how much of the

backlog was affected.

            So as to materiality, this complaint may not be "the kind

of vague prelude to a fishing expedition that Congress sought to

bar by imposing the clarity-and-basis requirement of the PSLRA."

In re Stone & Webster, Inc., Sec. Litig., 

, 198 (1st

Cir. 2005).      Summary judgment is usually a more appropriate

occasion to decide whether such details are of marginal interest or

so important that Textron's statements were misleading without

them.   E.g., In re Smith & Wesson Holding Corp. Sec. Litig., 

(1st Cir. 2012).

            We need not decide the materiality issue because the

complaint   fails   adequately     to   allege    scienter.     Unlike   some

securities statutes, section 10(b)'s anti-fraud language, together


                                    -11-
with the PSLRA, requires that for each misstatement or omission the

complaint    state     with    particularity    facts     creating     a   strong

inference that defendant acted with scienter--an intent to deceive,

manipulate, or defraud, Tellabs, Inc. v. Makor Issues & Rights,

Ltd., 

, 318-22 (2007), or a high degree of recklessness

suggesting an indifference to deceit, 

.

             Nothing in the complaint suggests that any of the named

officers believed, or was recklessly unaware, that the backlog's

significance     had    been     undermined     by    weakened       underwriting

standards, sales to intermediates, or any of the other flaws on

which the plaintiffs rely. And the questionable materiality of the

practices, depending importantly on matters of degree and detail,

deprives any inference of scienter of forward momentum that would

be helpful to plaintiffs.        City of Dearborn Heights Act 345 Police

& Fire Ret. Sys. v. Waters Corp., 

, 757 (1st Cir.

2011).

             Textron's top managers may have been negligent if they

were not aware; surely French was extravagant in saying of the

backlog that Textron had "torn it apart."                     But negligence or

puffing are not enough for scienter, Greebel v. FTP Software, Inc.,

,    198-99,   207   (1st    Cir.    1999);    and   warnings   by

subordinates or expressions of concern by executives are notably

absent, as is an unusually compelling case on materiality. Compare

Berson v. Applied Signal Tech., 

(9th Cir. 2008)


                                      -12-
(failure   to   disclose   that   reported   backlog   included   tens   of

millions of dollars in stop-work orders).

           The few counters offered by the Fund underscore the

absence of such evidence.         For example, the Fund says Cessna

violated its non-refundable deposit policy and policy against

selling delivery slots, and alleges that sales to ASRs were an

example of effectively inflating backlog.        A concealed change in

company policy might, depending on the circumstances, assist an

inference of scienter.     Cf. Chalverus v. Pegasystems, Inc., 59 F.

Supp. 2d 226, 235 (D. Mass. 1999).

           But Textron says financing deposits did not mean they

were refundable, and nothing shows that ASR sales were unusual.

Textron regularly made investors aware of international orders,

while plaintiffs provide no detail as to what proportion of

international orders were placed by ASRs, or whether that ratio

increased during the class period.

           And Textron flatly denied agreeing that customers could

sell slots, admitting only that "[o]ccasionally one will sneak

through on us."      Read closely, the complaint's more specific

allegations amounted to saying that customers wanted to sell slots

or hoped they would be allowed to do so.       So, while the relatively

detailed factual proffers in the complaint go some distance toward

making a case for materiality, they are considerably weaker in




                                   -13-
offering any direct evidence of guilty knowledge or fraudulent

intent.

             The Fund does note some stock sales by Campbell and

French during the class period, but this cannot add much to the

inference of scienter without something (e.g., points of comparison

from outside the class period) to show that these sales were

unusual.     

.           The Fund also observes that

the officers' careers and the survival of the company were on the

line, cf. In re Cabletron Sys., Inc., 

, 39 (1st Cir.

2002), but this is hardly the particularized showing required by

the PSLRA.

             If    Campbell     knowingly       understated    the       number   of

cancellations in July 2008, this would be would be "classic

evidence    of    scienter."       ACA   

   (internal

quotations and citations omitted).               But, as the district court

observed, on the crucial question of when cancellations began

piling up, cf. N.J. 

, Campbell's

statement        and   the     confidential       witness'     description        of

cancellations increasing "suddenly" in "late summer" are not in

conflict.

             As in all dispositions under Rule 12(b)(6), the Fund had

no access to compulsory discovery and could not search company

files or depose the individual defendants.                   But while a trawl

through      archives        may    sometimes       catch      a     few      fish,


                                         -14-
Congress--concerned about the cost and disruption--deliberately

raised   the   entry     bar   to   discovery   both   through   the   PSLRA's

heightened pleading standards and by other measures.             See Merrill

; 

.           Such trade offs based

on real-world experience are what legislative judgment is all

about.

             This leaves a plaintiff's counsel with a greater than

usual burden of investigation before filing a securities fraud

complaint.     Yet where district judges face promising complaints

that fall into an intermediate gray area, they have in practice

some latitude to refuse to dismiss some or all counts and allow

discovery, whether narrowly focused or in full.           Nomura 

.     This complaint's scienter allegations were weaker

than its materiality allegations and did not even arguably fall

into a gray area encouraging further proceedings.

             Affirmed.




                                      -15-